Does investing in silver stack up

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Does investing in silver stack up

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Gold tends to get all the glory when people look for an investment with a low correlation to traditional assets such as stocks and bonds.

But many invest in silver as an inflation hedge and to help protect the overall value of their portfolio in times of economic turmoil.

One tried and trusted method of silver investing is known as ‘stacking’. Simply put, a silver stacker accumulates physical pieces of silver bullion over time, quite often until it meets a predetermined percentage of their overall assets.

Silver offers stackers many of the benefits of gold, with some important extra advantages.

Both precious metals represent ‘hard’ assets they physically own, thus insulating them from the counterparty risk associated with paper investments.

Both are relatively rare, and because they cannot be created by governments are considered to be the ultimate forms of money – meaning they will outlast fiat currencies which may eventually fall victim to inflation.

Silver has the advantage that it is cheaper per ounce, allowing stackers to build significant holdings by making regular additions to their stockpile over time.

Demand for silver is not only driven by investors – it also benefits from diverse and growing uses in industry, technology, science and medicine. And silver can also be fun to collect – the multiplicity of coins and bars available giving it a hobby-like appeal.

Inflation hedge

Silver stackers are acutely aware that over time, currency may lose its purchasing power due to inflation. The Zimbabwean dollar and Venezuelan bolívar are two recent examples of currencies to have been shattered by rapid inflation.

Even the world’s most heavily traded currency – the US – is vulnerable. Between 1971 and
2021, the rate of inflation in the United States amounted to 569.2% at an average annual rate of 3.88%. This meant that USD 1.00 in 1971 was the equivalent to USD 6.69 in 2021.

The cost of one ounce of silver in 1971 was USD 1.54. Fifty years later, an ounce cost USD 25.14, a
1,532% increase. Using these numbers over this timeframe, it can be seen that silver was extremely effective at helping to preserve wealth.

Of course, the price of silver did not rise in a straight line during this period. In fact, silver had
some dizzying surges and some disheartening slumps.

In the 1970s, billionaires Nelson Bunker Hunt, William Herbert Hunt, and Lamar Hunt worried
about the effect of US inflation on their wealth, a huge sum they’d inherited from their oil tycoon father.

The Hunt brother’s response was their infamous attempt to ‘corner the market’ in silver. Relying
heavily on margin loans to fund their purchases, it’s estimated they gained control of about
one-third of the entire global supply of privately-owned silver.

Prices began skyrocketing in 1979 and by January 1980 were rapidly heading towards USD 50.00 per ounce. But the Hunt brothers’ strategy suddenly unraveled, in part due to new restrictions on margin traders, and the price crashed, dropping over 50% in just four days.

Silver spiked again in 2011 during the recessionary aftermath of the global financial crisis, and to a lesser extent in response to the economic downturn caused by 2020’s ‘great lockdown’.

Theoretically, a recession should be bad news for silver as reduced economic activity means less demand from industry. But on both occasions, panicky buyers suddenly bought up silver to compensate for losses elsewhere, pushing the price significantly higher for a while.

Silver stackers and other long-term investors tend to be less concerned about such rapid peaks and troughs. They’re comfortable in the belief that even though the overall value of their silver will go up and down, ultimately it’s a form of insurance against investment risk that also helps them stay ahead of the inflation curve.

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